Minister of Finance and Development Planning, Kenneth Matambo
A moderate economic growth of 4.4 percent is anticipated for the next six years of the National Development Plan, the Minister of Finance and Development Planning, Kenneth Matambo says.
Addressing a stakeholders’ conference on NDP 11 this week, Matambo stated that the economy was expected to grow at an annual rate of 4.4 per cent during NDP 11 compared to the average of 3.8 per cent for the current NDP 10.
However he said the 4.4 per cent average growth was insufficient to address the development challenges of unemployment, poverty, and income inequality the country is grappling with.
“Though marginally better than in NDP10, the 4, 4 percent average growth in the medium term will be insufficient to address the development challenges of unemployment, poverty and income inequality. Our challenge is to find measures that increase the growth of the economy beyond the projected level of 4.4 percent,” said Matambo.
The minister has therefore challenged stakeholders to find measures to increase growth of the economy beyond the projected 4.4 per cent average rate.
He warned about shortage of resources in the coming plan period saying: “despite the anticipated improvement in economic output, the situation of constrained resources will continue to be a challenge during NDP 11,” and added that “Mineral, customs and exercise, and non-mineral income tax would account for over 90 per cent of the total. Such continued narrow base is unsustainable, hence the need to deliberate on alternative revenue sources to diversify the revenue base.”
As such, Matambo said it is important for both the public and private sector to deliver value for money in any projects they undertake.
Under the NDP10, which covered the period 2009-2016, the minister said the economy performed slightly better than original forecast achieving a growth rate of 3.9 percent from a target of 3.3 percent with the non-mining sector having driven growth.
“A structural transformation occurred with the non mining sector driving the economy. “In the period the mining sector declined by an average of 3.4 percent while the non-mining sector realised a growth of 5.6 percent helping to cushion the decline of the real GDP,” said Matambo.
The minister said the ministry would hold further stakeholder meeting with members of local authorities, members of Ntlo ya Dikgosi and Members of Parliament during its bottom-up planning process for NDP 11.
The development plan kicks in next year covering the period from 2017 to 2022 to succeed the current NDP10 ending this year with an over-arching goal of striking a balance between economic, social and environmental issues.
Botswana’s unemployment currently hovers above 19 percent, a rate that is regarded as high compared to other countries of the same economic status as the mineral-rich liberal democracy.
Total revenue is projected at P372.3 billion for the next development plan. This budget will include the three years of implementing Economic Stimulus Programme.
The government budget in the current NDP10 is estimated to have posted a cumulative deficit of P6.37 billion (0.8 percent) with expenditure of P353.5 billion against revenues of P347.1 billion.
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”